Big Banks Entering Payday Loan Fray

September 11, 2011

Las Vegas Review-Journal

More big banks, including Wells Fargo and U.S. Bank, are offering payday loans
that consumer advocates say are similar to those offered by Advance America and
other check cashing stores. There are concerns that payday loans create a cycle
of debt as borrowers take out loan after loan and rack up fees to meet their
obligations, but banks say these "direct deposit loans" are for emergencies only
and prevent borrowers from falling deep into debt. Wells Fargo, for instance,
says it provides such loans only to established checking customers with
recurring direct deposit or a tax return and does not advertise the service. In
Nevada, payday loans are restricted to 25 percent of expected gross monthly
income and have a maximum term of 60 days, but state law does not impose limits
on the finance rate. There are more than five payday lending outlets per 10,000
households in the state, according to the Center for Responsible Lending. Wells
Fargo imposes a fee of $7.50 per $100 borrowed, translating into a 261 annual
interest rate over a two-week pay cycle, but the bank says borrowers cannot
borrow more than 50 percent of their direct deposit amount and no more than
$500. Moreover, they must take a one-month break after obtaining advances over a
period of six months. CRL recommends that borrowers avoid loans with annual
interest rates above 36 percent -- a ceiling currently in place in 16 states and
the District of Columbia.Web Link